Crocs (CROX -0.52%) and VF Corporation (VFC 0.31%) have headed in opposite directions over the past 12 months. Crocs' stock more than doubled as it continued to generate double-digit sales growth in a challenging macro environment. VF Corp's stock was cut in half as investors fretted over its slowing growth and soaring inventories.
Both stocks still look cheap right now. Crocs trades at 11 times forward earnings while VF has a forward multiple of 10. Crocs doesn't pay a dividend, but VF pays a hefty forward yield of 5.2% -- and it's raised that payout for 49 consecutive years. Does VF's lower valuation and attractive dividend make it a better bear market buy than Crocs? Or will Crocs continue to impress the bulls and outperform VF Corp this year?
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The differences and similarities between Crocs and VF
Crocs generates most of its revenue from its eponymous brand of foam clogs and sandals. But last February, the company expanded its portfolio by acquiring the Italian casual footwear brand HeyDude for $2.5 billion. It expects HeyDude to grow at a faster clip than its namesake brand for the foreseeable future.
VF owns a much broader portfolio of apparel, footwear, and accessory brands. Its four largest brands are Vans, The North Face, Timberland, and Dickies, which collectively generated 85% of its revenue in fiscal 2022 (which ended in March 2022). Its other notable brands include Smartwool, Altra, Supreme, Kipling, Jansport, and Eastpak.
Crocs and VF both generate their revenue through wholesale and direct-to-consumer (DTC) channels. Crocs generated 45% of its revenue from its DTC channels in 2022, while 46% of VF's fiscal 2022 revenue came from its DTC channels. Those rising DTC revenues should gradually reduce their long-term dependence on third-party wholesale retailers.
Crocs and VF both face tough near-term macro headwinds as inflation curbs consumer spending on discretionary goods. Currency headwinds notably reduced Crocs' revenue growth by 4.5 percentage points in 2022 and generated a staggering 6 percentage point headwind for VF's year-over-year revenue growth in the first nine months of fiscal 2023.
Which company is growing faster?
Crocs revenue soared 67% in 2021 as its sales accelerated in a post-pandemic market. Its revenue grew another 54% in 2022, but that growth was partly driven by its acquisition of HeyDude. Excluding HeyDude, Crocs' core revenue rose 15%.
Crocs expects its revenue to rise 10% to 13% in fiscal 2023 as it fully laps the HeyDude acquisition. It believes HeyDude will grow its revenue in the "mid 20s" throughout the year and offset the slower 6% to 8% growth of its namesake brand. It also expects Crocs' sales of Jibbitz (add-on charms for its namesake brand) to lock in more customers.
That outlook is stable, but Crocs still expects the integration of HeyDude to reduce its full-year adjusted operating margin by 2 percentage points to 26%. Analysts expect its revenue and adjusted EPS to rise 12% and 3%, respectively, in 2023.
Crocs' inventory levels jumped 121% in 2022, but that was mainly driven by its takeover of HeyDude. Excluding HeyDude's inventories, Crocs' stand-alone inventories rose 42% against an easy comparison to its unusually low inventory levels in 2021.
VF's revenue declined 12% in fiscal 2021 as the pandemic disrupted its sales, then rose 28% in fiscal 2022 as those headwinds dissipated. But in the first nine months of fiscal 2023, VF's revenue dipped 2% as all four of its top brands were rattled by inflation, intermittent COVID-19 lockdowns in China, and the unexpected decision by its largest wholesale partner in North America to stop accepting new merchandise. Vans, which experienced an 11% year-over-year sales decline during that period, also faced a significant slowdown in North America as it struggled with executional issues.
VF expects its revenue to rise 3% on a constant currency basis in fiscal 2023, as the growth of The North Face offsets Vans' decline, but analysts expect its reported revenue to decline 2% as the currency headwinds persist.
To make matters worse, VF's inventories more than doubled year over year in the first nine months of fiscal 2023 as its North American wholesale partner halted its orders. To clear those excess inventories, it's resorting to markdowns -- which it expects to compress its full-year adjusted operating margin by 360 basis points to 9.5%.
As a result, analysts expect its adjusted EPS to decline 35% this year. But for fiscal 2024, they expect its revenue and adjusted EPS to rise 3% and 6%, respectively, as it reduces its inventories and reins in its markdowns.
The winner: Crocs
Crocs' upside potential might be limited by concerns about its slowing growth and the costs of integrating HeyDude, but its core business looks healthier than VF's. VF's wholesale headaches and inventory issues will weigh down its stock, even if its low valuation and high yield limit its downside potential. Since both of these stocks are trading at similar multiples, it makes more sense to buy Crocs than to bet on VF Corp's eventual recovery -- which might require more than a year to play out.
